Storm damage may be tax-deductible
You've been through winds and high water. Take advantage of any tax deductions to soften the blow.
Homeowners who suffered losses from storms such as Hurricane Irene can potentially claim the losses on their federal income tax return.
The general rule is that casualty losses for your home, household items and vehicles are deductible for federal income tax purposes. An individual must file a timely claim with their insurance company, and in essence only the unrecovered loss after insurance proceeds and salvage value is tax-deductible.
The amount of loss for personal (non-business use) property is the lower of the adjusted basis of the property or the decrease in fair market value of the property. (What is adjusted basis? For a home, it would be the purchase price plus any capital improvements made.)
Personal casualty losses are reported on Form 4684 in Section A. Individuals who have suffered a casualty loss can also review Publication 584, a workbook on this topic. Business losses are also recorded on Form 4684, but in Section B, and are covered in their own workbook -- Publication 584B.
The casualty loss is calculated on Form 4684 as follows: Take the lower of the adjusted basis of property or the decrease in fair market value; subtract insurance proceeds, salvage value and $100. What remains is the casualty loss. Casualty loss minus 10% of adjusted gross income equals the deductible casualty loss.
Deductible casualty losses are transferred from Form 4684 and reported on Schedule A as an itemized deduction. Casualty losses are usually required to be filed in the tax year in which they occurred. Post continues after video.
If the casualty occurred in a federally declared disaster area, more favorable rules apply to casualty losses. Some of the rules:
- A casualty loss does not have to be taken in the tax year it occurred.
- A casualty loss can still be used even if a taxpayer does not itemize by including it on the standard deduction worksheet.
- For the tax years 2007-09 the 10% of AGI rule was waived; in the 2010 tax year, the 10% of AGI rule was in effect.
To check whether a storm was declared a federal disaster area, check FEMA's website. It lists storms classified federal disaster areas.
Suffering a casualty due to a storm is a tough situation. Take advantage of any tax deductions to soften the blow.
More on MainStreet and MSN Money:
Copyright © 2013 Microsoft. All rights reserved.
Quotes are real-time for NASDAQ, NYSE and AMEX. See delay times for other exchanges.
Fundamental company data and historical chart data provided by Thomson Reuters (click for restrictions). Real-time quotes provided by BATS Exchange. Real-time index quotes and delayed quotes supplied by Interactive Data Real-Time Services. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by SIX Financial Information.
ABOUT SMART SPENDING
LATEST BLOG POSTS
A new federal safety report shows toddlers and minority children make up a disproportionate number of drowning victims.